With the hope of closing a budget gap of more than $7 billion, Governor Bruce Rauner has presented the legislature with a Fiscal Year 2018 budget totaling $37.3 billion. His proposed methods for closing the gap includes some additional revenue but also a set of legislative measures to reform pensions, procurement, state employee health care, and human services.

Absent any change in state law (as well as what the Governor terms as spending controls), he puts the costs of an FY18 maintenance budget at $39.7 billion. To arrive at the lower amount of the proposed budget, the Governor has built in cost savings from a range of items that includes:

Offering a new level of pension benefits, Tier 3, to employees of the Teachers’ Retirement System (TRS), the State Employees Retirement System (SERS), and the State University Retirement System (SURS).

In 2010, the state created a lower level of pension benefits for those state and local employees who were hired after 2010. This was the “Tier 2” plan. Under the Governor’s proposal, new employees of TRS, SERS, and SURS could choose from either the Tier 2 or Tier 3 plan. For those not covered by social security, Tier 3 would consist of a hybrid of a defined-benefit plan and a defined-contribution plan. Employees covered by social security would have the option of enrolling in a defined-contribution plan (the new Tier 3 option) or the Tier 2 plan. However, local employers would need to pick up the complete pension costs for employees choosing either Tier 2 or Tier 3.

Ending late-career salary spikes by local employers.

Eliminating funding for health insurance for retirees of TRS or SURS as well as a health insurance/pension subsidy to the pension fund for Chicago public school teachers.

Reducing state employee group health insurance benefits.

Freezing state employee general and step salary increases for several years (for those in bargaining units) while implementing a merit bonus system for “high-performing workers”.

Enacting a set of procurement reforms that include allowing Illinois to join other states in competitive bidding contracts.

Selling the James R. Thompson Center in Chicago.

Moving non-Medicaid covered seniors enrolled in the state’s Community Care Program (which provides support services to seniors allowing them to remain in their homes versus nursing homes) to a modified package of services (named the Community Reinvestment Program).

Additional steps on how the state calculates actuarial assumptions for the pension systems and system contributions based on payrolls.

The Governor proposed some of these measures last year but the legislature did not adopt them.

Even if the state enacted these measures into law, the Governor’s budget still falls approximately $4.6 billion short of estimated revenues for FY18.

To close the gap, the Governor lists savings and revenue from a “grand bargain” that could include new revenue and potentially: a property tax freeze, changes in the workers’ compensation system, additional pension system changes, and further procurement reforms. Regarding pensions, Senate President John Cullerton has proposed a “consideration” model that would offer employees one of two choices of how future salary increases and cost-of-living adjustments are calculated for the employee’s future pension payments.

Absent any of the changes noted above, the Governor’s listed maintenance budget for FY18 is $7.2 billion higher than anticipated revenue.

Human Services

The proposed FY18 budget includes additional funding for the state’s child care assistance program (moving the income eligibility level back up to 185% of the federal poverty level). It also includes additional funds for the state’s early intervention program and home services.

At the same time, the Illinois Department of Human Services’ budget contains the discontinuation of funding, or a reduction, for a number of programs.

Education

PreK-12 funding includes an additional $50 million for early childhood education and full funding for the General State Aid Level (set at $6,119/student). The proposed budget also includes full funding for bilingual education and categorical reimbursement for regular/vocational transportation.

There is additional FY18 funding for the state’s Monetary Award Program (a proposed $401 million versus FY15 funding of $364 million), which provides college grants to low income students. Yet, the state hasn’t appropriated any funds for FY17 MAP grants.

State universities, for which state appropriation authority regarding general funds expired at the end of last year, will see a decrease of 10% from FY15 levels under the proposed budget.

Bill backlog and remainder of FY17

The budget indicates the level of outstanding bills for the state could reach $14.7 billion by June 30th of this year and notes the Governor’s willingness to work with the legislature to “sell bonds or take other actions to reduce the backlog of bills”. As to whether any appropriations bill for the remainder of FY17 might begin to address the bill backlog, the Governor’s budget director indicated at a Senate hearing the day after the Governor’s budget address that the Governor wanted to first establish the framework for an FY18 budget before taking up any supplemental measure for FY17.

After being downgraded twice in the last two years by the three major credit rating agencies (Fitch, S&P, and Moody’s), Illinois’ credit rating for all three now sits just two notches above non-investment grade. A lower credit rating generally translates to higher interest rates for any future issuances.

However, the even higher price is the impact the budget impasse is having on vital human services and the state’s higher education system. Universities have cut staff and programs. Human service providers have cut staff or shut their doors altogether. With the stopgap budget expired and no general revenue appropriations for the remainder of the fiscal year, a number of providers likely will not make it much longer unless the Governor and legislature approve a plan that provides adequate revenue to fund these essential services. Failure to arrive at a full-year budget for the last 20 months has already frayed the state’s human service safety net. Prolonged inaction by our elected officials will have a devastating impact on Illinois for years to come.